Advanced Energy Industries: 5 Different Insiders Have Sold Shares This Year

Jan.24.14 | About: Advanced Energy (AEIS)

In this article, I will feature one tech stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Advanced Energy Industries (NASDAQ:AEIS) designs, manufactures, sells, and supports power conversion products that transform power into various usable forms.

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Insider selling during the last 30 days

Here is a table of Advanced Energy's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Danny Herron CFO Jan 15-16 35,810 Yes 25,849 shares + 13,405 options 47.7%
Edward Grady Director Jan 16 8,000 Yes 12,500 shares 39.0%
Frederick Ball Director Jan 15 1,500 Yes

46,500 shares

3.1%
Thomas Rohrs Director Jan 13-15 16,000 Yes 47,000 shares 25.4%
Terry Hudgens Director Jan 2 7,500 Yes 29,000 shares 20.5%
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There have been 68,810 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Advanced Energy's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 68,810 0
December 2013 9,000 0
November 2013 140,630 0
October 2013 28,820 0
September 2013 91,604 0
August 2013 86,597 0
July 2013 40,600 0
June 2013 2,500 0
May 2013 0 0
April 2013 0 0
March 2013 0 0
February 2013 161,527 0
January 2013 0 0
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There have been 630,088 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Advanced Energy reported the third-quarter financial results on November 4 with the following highlights:

Revenue $142.9 million
Net income $0.7 million
Cash $104.7 million
Debt $11.4 million
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Outlook

Advanced Energy's fourth-quarter guidance is as follows:

Revenue $145-$155 million
EPS $0.47-$0.52
Non-GAAP EPS $0.59-$0.63
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Competition

Advanced Energy's competitors include BASF (OTCQX:BASFY), MKS Instruments (NASDAQ:MKSI), and SMA Solar Technology AG (OTCPK:SMTGF). Here is a table comparing these companies.

Company AEIS BASFY MKSI SMTGF Industry Average (Diversified Electronics)
Market Cap: 1.04B 98.48B 1.59B 1.37B 157.00M
Employees: 1,354 112,617 2,305 N/A 800.00
Qtrly Rev Growth (yoy): 0.22 0.02 0.18 -0.32 0.06
Revenue: 507.39M 95.56B 598.82M 1.26B 221.91M
Gross Margin: 0.37 0.25 0.41 N/A 0.26
EBITDA: 65.60M 12.75B 68.37M 37.16M 13.80M
Operating Margin: 0.09 0.09 0.09 -0.03 0.04
Net Income: 2.61M 6.06B 19.65M -32.95M N/A
EPS: 0.06 6.60 0.37 -0.95 0.06
P/E: 474.91 16.25 80.97 N/A 16.38
PEG (5 yr expected): 1.79 8.54 1.23 N/A 1.00
P/S: 2.14 1.03 2.69 1.08

0.73

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Advanced Energy has the second-highest P/S ratio among these four companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

Company Insider buying / shares Insider selling / shares
BASFY N/A N/A
MKSI

2,720

92,851
SMTGF N/A N/A
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Only Advanced Energy has seen intensive insider selling during the last 30 days.

Conclusion

There have been five different insiders selling Advanced Energy, and there have not been any insiders buying Advanced Energy during the last 30 days. Four of these five insiders decreased their holdings by more than 10%. Advanced Energy has an insider ownership of 0.70%.

There are three analyst buy ratings, three neutral ratings, and two sell ratings with an average price target of $26.00. Before going short Advanced Energy, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are bearish analyst price targets, and the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.